A

F ORMULA S HEET

Itos
Lemma
It x follows an Ito process, i.e. dx = a(x, t)dt + b(x, t)dz, then for any reasonably wellbehaved function G(x, t)


G G 1 2 2 G
G
dG = a
+
+ b
dt
+
b
dz
x
t
2 x2
x

Log-normal property
If S follows a Geometric Brownian Motion, then



2
2
ln ST lnS0 N

T, T
2

Put-call-Parities
For European options on non-dividend paying spot asset:
c + KerT = p + S0
With a continuous dividend yield q (or foreign interest rate rf ):
c + KerT = p + S0 eqT
For Futures options:
c + KerT = p + F0 erT

Black-Scholes-Merton framework
For European options on non-dividend paying spot asset:
c = S0 N (d1 ) KerT N (d2 )
d1 =

p = KerT N (d2 ) S0 N (d1 )

d2 = d1 T

ln(S0 /K)+(r+ 2 /2)T

With a continuous dividend yield q (or foreign interest rate rf ):

c = S0 eqT N (d1 ) KerT N (d2 )
d1 =

p = KerT N (d2 ) S0 eqT N (d1 )

d2 = d1 T

ln(S0 /K)+(rq+ 2 /2)T

For Futures/Forwards:

c = F0 erT N (d1 ) KerT N (d2 )

d1 =

p = KerT N (d2 ) F0 erT N (d1 )

d2 = d1 T

ln(F0 /K)+1/2 2 T

Cox-Ross-Rubinstein Binomial Trees

u = e

d = e

where

p=

ad
ud

a = ert
a = e(rq)t
a = e(rrf )t
a=1

for non-dividend paying stocks

for dividend paying assets
for currencies
for Futures/Forwards

Some Greeks
For dividend-paying European options

Calls

Puts

eqT N (d1 )

eqT [N (d1 ) 1]

N 0 (d1 )eqT

N 0 (d1 )eqT

S0 0 T qT
S0 T N (d1 )e

S0 T
S0 T N 0 (d1 )eqT

Hedge paramaters
If is the change in value in a portfolio over some small time period t in response
to changes in some underlying S, it approximately holds that
=

1 2
S +
t +
(S)2
S
t
2 S 2

Exotic Options
Binary cash-or-nothing options paying Q when in the money are worth:
cc = QerT N (d2 )

pp = QerT N (d2 )

Binary asset-or-nothing options delivering the underlying asset S when in the money
are worth:
c = S0 eqT N (d1 )

p = S0 eqT N (d1 )

The fair value of a chooser option maturing at time T2 with the decision about type to
be made at time T1 is:
max(c, p) = max (0, S0 K) + eq(T2 T1 ) max 0, Ke(rq)(T2 T1 )
2

TABLE FOR THE S TANDARD N ORMAL D ISTRIBUTION

Table 1: For z 0, the table gives N (z) = P ( < Z < z). For z < 0, use N (z) =
1 N (z).
z
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
2.00
2.10
2.20
2.30
2.40
2.50
2.60
2.70
2.80
2.90
3.00

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.5000
0.5398
0.5793
0.6179
0.6554
0.6915
0.7257
0.7580
0.7881
0.8159
0.8413
0.8643
0.8849
0.9032
0.9192
0.9332
0.9452
0.9554
0.9641
0.9713
0.9772
0.9821
0.9861
0.9893
0.9918
0.9938
0.9953
0.9965
0.9974
0.9981
0.9987

0.5040
0.5438
0.5832
0.6217
0.6591
0.6950
0.7291
0.7611
0.7910
0.8186
0.8438
0.8665
0.8869
0.9049
0.9207
0.9345
0.9463
0.9564
0.9649
0.9719
0.9778
0.9826
0.9864
0.9896
0.9920
0.9940
0.9955
0.9966
0.9975
0.9982
0.9987

0.5080
0.5478
0.5871
0.6255
0.6628
0.6985
0.7324
0.7642
0.7939
0.8212
0.8461
0.8686
0.8888
0.9066
0.9222
0.9357
0.9474
0.9573
0.9656
0.9726
0.9783
0.9830
0.9868
0.9898
0.9922
0.9941
0.9956
0.9967
0.9976
0.9982
0.9987

0.5120
0.5517
0.5910
0.6293
0.6664
0.7019
0.7357
0.7673
0.7967
0.8238
0.8485
0.8708
0.8907
0.9082
0.9236
0.9370
0.9484
0.9582
0.9664
0.9732
0.9788
0.9834
0.9871
0.9901
0.9925
0.9943
0.9957
0.9968
0.9977
0.9983
0.9988

0.5160
0.5557
0.5948
0.6331
0.6700
0.7054
0.7389
0.7704
0.7995
0.8264
0.8508
0.8729
0.8925
0.9099
0.9251
0.9382
0.9495
0.9591
0.9671
0.9738
0.9793
0.9838
0.9875
0.9904
0.9927
0.9945
0.9959
0.9969
0.9977
0.9984
0.9988

0.5199
0.5596
0.5987
0.6368
0.6736
0.7088
0.7422
0.7734
0.8023
0.8289
0.8531
0.8749
0.8944
0.9115
0.9265
0.9394
0.9505
0.9599
0.9678
0.9744
0.9798
0.9842
0.9878
0.9906
0.9929
0.9946
0.9960
0.9970
0.9978
0.9984
0.9989

0.5239
0.5636
0.6026
0.6406
0.6772
0.7123
0.7454
0.7764
0.8051
0.8315
0.8554
0.8770
0.8962
0.9131
0.9279
0.9406
0.9515
0.9608
0.9686
0.9750
0.9803
0.9846
0.9881
0.9909
0.9931
0.9948
0.9961
0.9971
0.9979
0.9985
0.9989

0.5279
0.5675
0.6064
0.6443
0.6808
0.7157
0.7486
0.7794
0.8078
0.8340
0.8577
0.8790
0.8980
0.9147
0.9292
0.9418
0.9525
0.9616
0.9693
0.9756
0.9808
0.9850
0.9884
0.9911
0.9932
0.9949
0.9962
0.9972
0.9979
0.9985
0.9989

0.5319
0.5714
0.6103
0.6480
0.6844
0.7190
0.7517
0.7823
0.8106
0.8365
0.8599
0.8810
0.8997
0.9162
0.9306
0.9429
0.9535
0.9625
0.9699
0.9761
0.9812
0.9854
0.9887
0.9913
0.9934
0.9951
0.9963
0.9973
0.9980
0.9986
0.9990

0.5359
0.5753
0.6141
0.6517
0.6879
0.7224
0.7549
0.7852
0.8133
0.8389
0.8621
0.8830
0.9015
0.9177
0.9319
0.9441
0.9545
0.9633
0.9706
0.9767
0.9817
0.9857
0.9890
0.9916
0.9936
0.9952
0.9964
0.9974
0.9981
0.9986
0.9990